Arla Foods, which operates across Europe from Scandinavia to the UK, says that the global economic downturn had forced it to tighten its budget, reducing farmer payouts to 232.4 Danish øre (€0.31)per kg of milk.
Last year, farmers groups from across Europe were involved in protests and other industrial action as part of plans to draw attention to concerns over the money received for their milk and the difficulty in meeting supplies.
As reforms to the EU Common Agricultural policy (CAP) continue, processors have been faced with discontent from milk suppliers and, in case of cooperatives, their own members, over protecting profit and milk supply.
In this week setting out the cooperative’s annual budget for 2009, Arla chief executive officer Peder Tuborgh said that expected difficulties as a result of the financial climate require a balancing act between producing added-value goods and cost efficiency.
”All parts of the business will have to be made more efficient and productivity will be improved in order to minimise cost increases at a time when, unfortunately, we can expect turnover to fall," he stated.
Tuborgh claims that tight ‘targeted’ financial management will ensure the group can continue to pay its members one of Europe’s highest milk payouts.
"Although this represents a dramatic fall, we cannot allow the global crisis to deflect us from our objectives,” he stated. “Regardless of the difficult market conditions, we must continue to develop the business and increase profitability.”
Tuborgh said that the declining payouts were therefore unavoidable due to current economic uncertainty, which he claims has pushed consumers to buy less dairy products and increasingly focus spending on discounted goods.
Arla added that it was facing tougher overall competition in the retail sector as well as large fluctuations in foreign exchange rates, which were also hampering the group’s financial performance.
With the new payouts having come into place from 1 January this year, the cooperative claims to remain committed to its long-term strategy towards 2013.
This includes focusing on added-value whey goods, pushing three global brands in Castello, Lurpak and Arla and generating turnover of DKK 75bn (€10bn).
In light of the current financial concerns, the decision of groups like Arla and a number of dairy processors to announce new year cuts in milk payouts has been branded as ‘unjustified by one national farmers’ group.
Gwyn Jones, dairy board chairman of the UK-based National Farmers’ Union (NFU) said he was disappointed by the cuts, suggesting Arla and other processors were neglecting milk producers.
“I'm not blind to what's happening on world and EU commodity markets and am well aware of the pressure being exerted on the cheese market by lower priced, lower quality imports,” stated Jones. “But for a large liquid milk processor such as Arla to drop its price so ruthlessly and then blame it on falling commodity prices is very surprising.”